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Husband/wife (only) CB plan.  Terminated last March.

Plan was sufficiently funded, and the plan document allowed for a pro-rata increase to plan benefits up to the 415 limits.  (Neither was reached, even.)  IRA rollovers processed a year ago for MORE than the actual accrued benefits under the formula.

Problem is - there was a $200K residual balance stuck in a gated hedge fund.  It still exists a year later because they can't seem to liquidate it. 

So the "get all assets out in 12 months" has now been broken.  Technically the employees (not old enough for an in-service) both got more than they were required to.  

At this point I'm just wondering who's seen this kind of fact pattern before and what became of it.  I wouldn't think the original rollovers would draw IRS scrutiny, but would finally moving any further excess to IRAs at this point, even with re-papering the participants, be problematic?  Could the IRS deem any amounts at this point just a reversion to the sponsor?  (Hiding behind the idea that the participants are technically fully "paid enough" at this point.)

I wish I knew the limitations on changing the named investor on that hedge fund - whether or not it could be "transferred" between plans or to an IRA directly, since it's apparently not liquid enough to sell.  (I enjoyed 4-5 years of hell a decade ago due to a gated hedge fund in a DC plan.)

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I believe the rule is more you need to distributed in a timely manner and the IRS considers 1 year a timely manner. That said I would think liquidation issues would be something the IRS would likely consider a reasonable delay, assuming the delay is not "too long", which is something of a grey area I will admit.

Did the Plan document say excess assets would be allocated to participants? And will they still be under the 415 limit if you could distribute the hedge funds? If the answer to both is yes, then I would have the client talk to the guy who sold them the gated hedge fund about re-registering the the asset from the Plan to IRAs for both of them in whatever proportion was decided and do a 1099-R for the in-kind rollover. That "should" satisfy the hedge fund as they are more concerned with liquidation issues but honestly I don't know if it "will" satisfy them.

If that fails, suggest they talk to ERISA counsel about what is involved in getting out of the hedge fund so the Plan can close.


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